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Why Is DXC Technology (DXC) Up 6.6% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for DXC Technology CompanyDXC . Shares have added about 6.6% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is DXC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

DXC Technology Q3 Earnings Top, Revenues Miss Estimates

DXC Technology reported non-GAAP earnings from continuing operations of $2.15 per share for third-quarter fiscal 2018, which surpassed the Zacks Consensus Estimate of $1.99 per share and also increased on a year-over-year basis.

Quarter Details

Revenues in the quarter soared a whopping 222.7% from the year-ago period to $6.186 billion. However, excluding the impact of purchase price accounting and last year's one-time contract reset United States Public Sector (USPS), revenues were down 4%. On a constant-currency basis, revenues fell 5.9% year over year. DXC Technology's revenues also fell short of the Zacks Consensus Estimate of $6.228 billion.

Segment wise, revenues from Global Business Services (GBS) surged a massive 121.3% on a year-over-year basis to $2.315 billion. Excluding the impact of purchase price accounting, on constant currency basis, revenues decreased 6.6% year over year. The decline was primarily due to weak performance of traditional application services which was partially offset by growth at Enterprise Applications and Business Process Services businesses. Revenues from the new business for GBS came in at $3.3 billion during the reported quarter.

Global Infrastructure Services (GIS) revenues during the fiscal third quarter came in at $3.145 billion as compared with $871 million reported in the year-ago quarter. On constant currency basis, revenues dropped 6.8% year over year (excluding the impact of purchase price accounting), primarily due to decline in traditional infrastructure services. Revenues from new business for GIS awards came in at $2.2 billion during the quarter.

USPS revenues came in at $726 million during the quarter, however were down 11.9% year over year (excluding the impact of purchase price accounting). Revenues from new business for USPS awards came in at $527 million in the quarter.

The company's adjusted operating income from continuing operations (excluding one-time items) amounted to $927 million as compared with $626 million reported in the year-ago quarter. Adjusted operating margin came in at 15% as compared with 9.5% reported in the prior-year quarter.

Adjusted net income from continuing operations came in at $622 million during the quarter as compared with $416 million reported in the year-earlier period.

The company exited the quarter with $2.926 billion in cash and cash equivalents compared with $2.671 billion in the previous quarter. Long-term debt balance (net of current maturities) was $6.367 billion. Net cash provided by operating activities during the nine-month period ended Dec 31, 2017, came in at $2.542 billion. Adjusted free cash flow for the first three quarters of fiscal 2018 came in at $1.870 billion. During this period, the company returned $189 million to shareholders through share buyback and dividend payments.

Outlook

The company reaffirmed fiscal 2018 revenues guidance but increased its outlook for non-GAAP earnings per share. For fiscal 2018, DXC Technology projects its revenues in the range of $24-$24.5 billion in constant currency.

However, the non-GAAP earnings per share guidance range has been raised to $7.50-$8.00 from $7.25-$7.75 anticipated earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been seven revisions higher for the current quarter In the past month, the consensus estimate has shifted by 9.4% due to these changes.

DXC Technology Company. Price and Consensus

DXC Technology Company. Price and Consensus | DXC Technology Company. Quote

VGM Scores

At this time, DXC has a great Growth Score of A, though it is lagging a lot on the momentum front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for value and to a lesser degree momentum.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise DXC has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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